Nazara Technologies Ltd Q2 FY24 Earnings Conference Call Insights

Key highlights from Nazara Technologies Ltd (NAZARA) Q2 FY24 Earnings Concall

• Financial Performance
  • Revenue increased 13% year-on-year to INR297.2 crores.
  • EBITDA grew 30% year-on-year to INR 27.9 crores.
  • PAT increased 53% year-on-year to INR 24.2 crores.
  • Gaming segment revenue grew 43% and EBITDA 14% year-on-year in Q2.
  • eSports segment revenue grew 21% and EBITDA 16% year-on-year in H1 FY’24. Expect momentum in IPs around popular games going forward.
  • Adtech business overcoming challenges, margin forecast improving in Q2. Focus on higher margin clients and expanding client base.
• M&A Plans
  • Consolidated cash reserves of over INR1,300 crores.
  • Recent fundraising of INR 510 crores from Nikhil Kamath and SBI Mutual Fund.
  • Well positioned to capitalize on M&A opportunities to accelerate growth.
  • Corporate M&A to target minimum INR100 crores revenue companies.
  • No new business segments, acquisitions to be synergistic.
  • Aim to deploy some capital in next couple of quarters.
  • Hope to see some deployment before end of current fiscal.
• Focus Areas
  • Businesses consolidated and focused on strengthening KPIs.
  • Efforts to accelerate organic growth and enable strategic acquisitions.
  • Confident in ability to deploy cash reserves effectively.
• Kiddopia Business
  • Revenue grew 8% year-on-year in H1 FY’24 to INR113.9 crores.
  • Focused on acquiring customers at optimal CAC to ensure healthy margins.
  • Resulted in EBITDA margin expansion from 17.5% in H1 FY’23 to 25.5% in H1 FY’24.
  • Working on initiatives like licensing IPs to drive growth.
  • Facing challenges scaling Google ad spend and working with Google to resolve spend scaling issues.
  • Considering other ad networks to open up scale.
• Animal Jam Acquisition and Outlook
  • Optimized costs leading to 24% EBITDA margin in Q2 FY’24.
  • Improved monetization loops resulting in 46% increase in ARPDAU.
  • Focus on licensing deals to introduce popular IPs and drive organic growth.
  • Fixed margins first, now at 22-24% vs single digits earlier.
  • Revenue growth to happen in coming quarters.
  • Will invest more in user acquisition and marketing
• GST Impact on Gaming
  • 28% GST levied on entry fees effective October 1.
  • Nazara absorbing tax impact currently, eroding margins.
  • Implementing cost optimization and increasing commission rates.
  • Confident business will stabilize and set base for future growth.
• Nazara’s Publishing Strategy
  • Will take equity in developers requiring capital for teams/development.
  • With developed games, may not take equity upfront.
  • Aim to build large consumer base across many published games.
  • Nazara SDK to enable cross-promotion and first-party data.
• Indian User’s Monetization Outlook
  • Seeing better in-app purchase conversions as users evolve.
  • Tailwind from growth of digital payments in India.
  • Monetization still far behind global markets, but incremental improvement happening.
• Nodwin eSports Outlook
  • Currently in investment phase, not focused on margins.
  • Stated policy is margins can increase to 10-15% over time.
  • No specific margin guidance at this point.
  • Content views declined due to ban and subsequent review of popular games in Q1.
  • Big IPs scheduled in Q3 and Q4 as key season.
• Datawrkz Adtech Business Outlook
  • Adtech facing global headwinds like lower ECPMs, but Datawrkz provides user acquisition service to clients.
  • Focusing on higher margin clients and product side.
  • Still huge room for growth and margin expansion.
  • Leveraging it for other Nazara games.
• Pro Football Network (PFN) Scaling
  • Acquired when still negative margin business.
  • Aimed for breakeven in first year and achieved breakeven month in September.
  • Applying Sportskeeda playbook for growth.
  • Expects to scale revenues much higher with profitability.
• Full Year Outlook
  • Expect higher revenue and EBITDA growth in H2 vs H1.